I was the senior retail analyst at Morgan Stanley for 16 years, following a 20 year career at retailers including Macy’s, May Department Stores and Allied Stores. Currently I head Loeb Associates Inc. a management consulting and strategic advisory firm for leading domestic and international retail companies. I was a director of the National Retail Federation (NRF) as well as several leading retail companies including The Hudson Bay Co, Gymboree Corp. and Federal Realty Investment Trust. In addition to publishing the acclaimed Loeb Retail Letter, I have been, for several decades, quoted in the media on events and trends in the retail industry in top business and trade publications.

J.C. Penney's Ron Johnson Had An Epiphany, Let's See If It Works

Ron Johnson, the new Chairman and CEO of J.C. Penney had an epiphany when he worked for Steve Jobs at Apple. He was planning the first Apple store, according to Walter Isaacson’s chronicle of Steve Jobs (2011, Simon & Schuster 630pp), when he suddenly woke up to the fact that he did not want to sell Apple products arranged by classifications, but rather by lifestyle.

That is a clue to what is happening now in J.C. Penney stores. They will, in the next few years, transform into lifestyle stores. And they will appeal to a younger customer who lives in a different world than the traditional J.C. Penney customer. That’s quite a transformation that is being planned for the stores. They look different already, since on February 1st the promotional needle was suddenly yanked from the stores, and they now look cleaner, neater and very orderly. Departments have been realigned and clearly identified with colored columns and good displays. Customers are sparse, since there are few incentives to shop in the stores.

The fair and square pricing, that the company has embarked on is based on three concepts. Everyday prices are attached to the products that will be sold at “great prices” every day. Month long values can be found on products for a single month – and they are often marked with regular price tags on a special promotional rack and best prices, which are put on sale every 1st and 3rd Friday at sharp markdowns – usually merchandise from prior selling periods.

All of this is revolutionary. The industry is watching to see whether it works, and so far, the customer is confused and the traffic is minimal in the stores, suggesting that at the current rate it will take a herculean effort to convince the customer that the products are at sharp prices, are timed right and are wanted.

It is revolutionary since it would set a new tone to retailing. Retail managers of various stores have assured me that their promotional activity has not increased in recent years. This is the first genuine decrease of promotions and it would be great if the customer would respond to it. Macy’s, J.C. Penney’s arch competitor in addition to Kohl’s, 4 weeks after the new fair and square pricing went into effect came out with a mailer they called “everyday value”, great prices you can count on every day, only at Macy’s. However, the week after that promotion, Macy’s was back with one of their hard hitting “one day sales (which runs for two days).

The shopping malls need customer traffic that is generated by anchor stores. Sears has let the malls down, since their momentum has decelerated for several years due to their misguided emphasis on hardlines and their selling their key brands through other outlets such as Home Depot or Costco. The sudden deceleration of customer visits in J.C. Penney stores is costly to the stores in the vicinity of J.C. Penney. The customer is shifting their shopping pattern.

Earlier we said that Ron Johnson is a revolutionary. He has a vision that his stores will have 100 boutiques and a town center that will attract a new, young, affluent customer. He has invited vendors to participate, and he will create special boutiques for them in the next year. He has streamlined the organization in order to reduce the cost of operation. By streamlining the buying organization and appointing a single general merchandise manager and reducing the number of associates who constantly remark merchandise, he hopes to reduce the operating costs of the company. I wish him all the success in the world, since the industry needs new leadership and new vision. It will take a lot of creativity, time and investors’ patience.

The company announced it will issue an earnings release for the first fiscal quarter of 2012 on May 15, 2012 at 4.00 pm.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

This is a recipe for disaster. JCP is not Apple, and there is little to any cachet around their stores. The mall model is dying, and this is painfully obvious to anyone who walks into one of the countless husks of what once used to be thriving malls. Besides, as someone who used to be a JCP customer, I am insulted by the arrogance of the new pricing model they are pushing. I’m not an idiot; I know their prices are higher than they used to be, even as their level of service declines. I also know that the quality of the product they sell has declined since most of it is made overseas. I don’t need to be reeducated – quit trying to screw me as a customer and tell me you offer better value, because you don’t. It seems that all JCP picked up with Ron’s leadership is the arrogance of the Apple empire, with none of the marketing genius.

I couldn’t agree more. Sears tried this tactic in the late 1980s/early 1990s with “everyday low pricing,” and it failed miserably. I know because I worked for them for 12 years. Sales took a dive, customers were confused and ticked off because they wanted to buy items that were on sale. Within a few months, we received the edict that sale signs were to be put back up. I am a JC Penney shopper and I know I am not receiving the same value I once was with sale prices and then coupon savings on top of that. Long time employees at my local store tell me that business is way down and even just foot traffic is horrible. We don’t need the artsy Target-like ads on TV or the barely readable “mini-catalogs” in the mail that when I look at them I can’t find the price of the items, nor can I be sure if they are advertising the shirt, pants, shoes or whatever since there is no description or labeling! Penneys is not Apple, and it is evident that Mr. Johnson is out of touch with this segment of retail.

The new JCPenney sounds very exciting to the employees that are currently still employed,however, it takes time for this new execution to be successful. Customers are starting to respond to the new pricing that is being implemented and their response is quite positive. The negative feedback is the scarcity of employees. Customers are used to our “Customer First Service” and with fewer employees in place now the customer is not feeling the Customer First Service. It is difficult to provide excellent customer service when there is only one csr available in each department. Customers deserve better. For those of us that give excellent customer service naturally it is difficult to see some customers trying to be patient while waiting for service. The customers comment that we need more associates and we smile, appoligize for the inconvenience and ask them to reply to our survey. In time maybe there will be an improvement. The direction our company is going does look promising, so we just need to be patient.

There is nothing in JC Penny that cannot be bought somewhere else. When Ron Johnson recognizes that fact he will see how his vision of boutiques does not offer an experience – EXPERIENCE is the difference needed to compete with on-line….and that still does not address the ‘why buy it now/why buy it here’ challenge of mobile comparison. That is addressed by consignment. ‘Experience’ produces traffic (1st challenge of on-line competition) and consignment matches distribution value of the Bricks (2nd challenge of on-line)…key to the situation is when the major traffic bricks match prices via consignment with on-line. How you ask? replace the ancient UPC with individual scan code…not RFC….something like QR codes. C’mon people…is anybody out there thinking????!!!!

Wow, being educated as to what is really going on is my response to comments.

The retail has not changed except that service has gone by the way side over the years. All goods sold are the same quality if not better and more current products. Service is where the focus needs to be and I believe that is where Mr. Johnson is headed. Pricing is at what the consumer is purchasing and lower, without all the hassles of coupons, and early before dawn shopping, giving all chances to shop at the same price, with an opportunity to the consumer to purchase items no longer to be brought in the store if there are any items left at a lower price, and purchase at a month long price at a promotional sale amount.

Change just seems to be a difficult area for the habitual and consistent human, and sometimes it takes time to transform. My outlook is lets work on the people service and embrace change. There must be a good reason the change has come about, no? I believe we have been given an opportunity with JCP to have Mr. Johnson bring in his ideas, be reminded his creative ideas worked for Apple why not use this talent and experience for JCP.

Here’s one for you, I just tried to shop at a local competitor, and grocery outlet, no names, and I was shocked at how much higher the prices were than JCP, just for the simple everyday products in clothing and house ware, I ran back to JCP and just as I remembered found what I needed for almost half the price on sale at their everyday prices, the was not the month sale price, or marked down last price for good.

Takes arrogance to post such incorrect, uneducated knowledge, no? Your right it is not an Apple store, it is JC Penney’s and they are like no other Retail outlet.

Ron Johnson claims this is “fair and square” and “great” pricing. He has also been quoted on other articles as stating “The customer knows the right price” “We can raise the price all we want; she’s only going to pay the right price. And why is that? Because she’s an expert.” The problem with this new scheme is that this “expert” customer knows that the new JC Penney’s prices are ridiculously high. I have bought a certain brand of clothing there for years for my Mother. I went to buy something for her this week and was absolutely shocked by the prices as they were more than I had ever spent for that brand anywhere before. I went to Macy’s and got the exact same shirt for $20 cheaper than the Penney’s price. out of curiousity I also looked online and found the same shirt at 2 other places for $18 cheaper than the Penney’s price. In looking around J.C. Penney while there, all of the prices seemed significantly higher than we had ever paid for things at J.C. Penney in the past. Johnson’s model will never work if this new “fair” pricing of the products in the store is significantly more than the pricing of the same items by its competitors. His “expert” customer will walk right out of the store and straight to the competitor, as I did this week.

I would hope that, as Americans, we would take more of a “let’s wait and see” approach to JCPenney’s changes. Just think of all of the examples where someone had a bold and revolutionary idea and others told them that it “will never work”, and then it did.

I’m not saying that everything Mr. Johnson is prescribing for JCP will be a resounding success…but, like during his time at Apple, he’s not afraid to try something different, something that, if it works, will revolutionize this industry. It will force other retailers to create a compelling reason to shop their stores beyond a $10 off coupon or end-of-season clearance sale.

From what I understand, JCP was spending $2B annually on promotions, much of it going to the inundation of customer mailboxes with daily/weekly mailers and coupons. What Mr. Johnson & team are doing is halting the insanity for both its employees and its customers. I’m guessing that other retailers are secretly crossing their fingers that Johnson’s “no coupons/no sales” idea works.

I think Johnson & JCP, being only about 90 days into their new strategy, are continuing to tweak their plan, as they learn what things are and aren’t working. There is a balance, a winning recipe that, when found, will help JCP attain their stated goal…”To become America’s favorite store.”

And don’t you know that every time someone says “it can’t be done”, the resolve of Johnson & JCP is emboldened. Maybe we should all take the familiar advice and “hide & watch”.

Here’s something to think about…what will JCP’s strategy be for “Black Friday” and the holiday season with this new approach?? This should be interesting, to say the least.

I am one of the few surviving current employees of a JCP store, Ron Johnson told us from the beginning that we would no longer have a need for the pricing associates in the store, but he has also laid off managers and supervisors as well as regular sales associates because we are not making our sales. Our store is top 20 of our district in sales and easily half of the employees in our store have been laid off due to “budget” problems. The remaining associates are suffering because of it, our responsibilities have doubled and trippled but we are paid the same minimum wage salary and our hours have decreased by more than half of what they were weekly. Sometimes it takes even up to an hour to find somebody to cover a 10 minute break, which is pretty ridiculous. With great improvement comes great change, but we are suffering from these changes and customers are not taking well to the changes. I know its too early to tell whether these changes are for better or worse but for right now Ron Johnson has screwed us over.